Oil Market Settles Lower, Taking Iran-Saudi Dispute in Stride

LONDON — Oil prices quickly gave back early gains to close lower on Monday after investor concerns about Middle East tensions gave way to a continued focus on weaknesses in global economies.

Earlier in the day, a growing conflict between Saudi Arabia and Iran worried investors, sending oil prices higher during the European trading day.

In the past, a flare-up in the Middle East could send oil prices soaring, but investors these days seem mainly focused on a global glut of petroleum. With so much oil on the world market, even the biggest producer — Saudi Arabia — has only a limited ability to affect prices.

The moderate price reaction to a feud between two of the world’s major oil producers shows how much the dynamics of the oil market have changed in the last two years.

The signs of a slowdown in China, the world’s biggest economy after the United States, is weighing on prices of various commodities, including oil.

Brent crude oil futures for February, the main international benchmark, settled 6 cents lower at $37.22 a barrel. It had risen as much as 4 percent in Europe on Monday.

In the United States, benchmark crude oil briefly traded over $38, but closed at $36.76 a barrel.

The friction between the Iranian and Saudi governments did serve as a reminder that, despite the sharp fall in oil prices over the last two years, the Middle East, which produces almost one-third of the world’s crude, remains a volatile region.

“What is coming back to the surface is how deeply divided and complex the Middle East is at present,” said Richard Mallinson, an analyst at Energy Aspects, a market research firm in London.

If anything, the Saudi-Iranian tensions might simply emphasize the considerable disarray in the Organization of the Petroleum Exporting Countries.

OPEC nations, instead of banding together to limit production and raise prices, are scrambling to discount oil in a battle for customers, like China and India.

It is now a matter of “the winner gaining market share and the loser being squeezed out,” analysts at Citigroup wrote in a note to clients on Monday.

Iran, along with Venezuela, has called for production cuts to prop up prices — entreaties that the Saudis and their Arab allies like Kuwait and the United Arab Emirates have ignored. Despite the depressed oil prices, OPEC members at their most recent meeting in early December were unable to agree on anything of substance, including a production target.

“An agreement to cut production has already eluded OPEC for more than a year; this latest disagreement seems to put it further out of reach at this time,” said Bhushan Bahree, a Washington-based analyst at IHS, a research firm.

A big question that had already been weighing on global markets is how OPEC will deal with the anticipated increase in Iranian output if, as expected, Western sanctions over the country’s nuclear program are lifted later this year.

Iranian production has fallen around 800,000 barrels a day to about 2.9 million barrels a day since 2010 as the sanctions have limited Iran’s exports, which now go mainly to China, India, Turkey, South Korea and Japan.

A sizable portion of that production could be brought back quickly, although analysts say that major increases will depend on how successful Iran is at attracting foreign investment to update its aging petroleum infrastructure.

In recent years, the influence of the Middle East producers on the market has been reduced by many factors, including the increase in production outside the region, especially in the United States, which has become a major oil producer through the development of oil from shale-rock deposits.

“The rise of shale oil production has greatly calmed fears about dependence on the Middle Eastern producers to satisfy global oil demand,” said Michael Lynch, president of Strategic Energy & Economic Research.

Another factor is that warm weather in much of the world in recent months has been affecting the price of oil and natural gas, both of which are used for heating.

The dispute between Saudi Arabia and Iran may also feed into other regional conflicts, like the fighting in Yemen, which borders Saudi Arabia, or the civil war in Syria.

There is also concern that the tensions might affect the shipping lanes out of the Persian Gulf or spill into Iraq, which has become the second-largest OPEC producer after Saudi Arabia.

But for now, at least, energy investors seem to be betting that, whatever the geopolitical repercussions of the Saudi-Iranian dispute, oil will stay cheap and plentiful.

A version of this article appears in print on , Section B, Page 4 of the New York edition with the headline: Oil Markets Settle Lower, Despite Iran-Saudi Feud. Order Reprints | Today’s Paper | Subscribe